Our Most Valuable Natural Resource

(The image of Lisa Simpson to the right is from The Simpsons website-www.thesimpsons.com.)

“Children are our most valuable natural resource, even more valuable than oil.” This astute observation was made by the cartoon character Lisa Simpson, while campaigning for Springfield’s Mayor Quimby’s re-election in the television show The Simpsons.

While children are indeed our most valuable natural resource, they are also in short supply in the developed world. And, a shortage of any valuable natural resource—whether children or oil—is bound to have some troubling implications.

To understand these implications, it’s first important to grasp what’s been going on with children. In the U.S., fertility peaked at 3.7 children per woman during the post-World-War-II baby boom, but has since fallen to 2.1 children per woman.

The situation in other developed countries has been even more extreme. Italy and Japan have some of the world’s lowest fertility rates, at 1.3 children per woman. This figure is well below the replacement rate—2.1 children per woman—needed to prevent population decline.

Already in Germany, death rates have begun to exceed birthrates. Between 2003 and 2005, the number of people in Germany shrunk by 82,000, according to the country’s Federal Statistical Office. Most developed countries are expected to follow Germany’s pattern of reaching a population peak and then declining.

Aside from the far-fetched possibility that Germans could become extinct, there are three major reasons why this birth dearth in the developed world should be of concern.

First, falling birthrates have begun to place strains on social security systems. In the U.S., there were about five working-age people for every person over age 65 in 2000. By 2050, however, there will only be about three working-age people for every person over 65.

With fewer workers to pay each retiree’s Social Security check, something will have to give. Taxes will have to increase; Social Security benefits will have to fall; or the retirement age will have to rise.

The Bush administration has proposed reforming Social Security by adding the option of individual accounts. Such a reform isn’t unprecedented. Countries such as Sweden and Australia have already made individual accounts part of their social security systems.

As promising as individual accounts may sound, their sustainability depends on the overall health of the economy, which is the second area of concern with respect to fertility decline. A country’s GDP (gross domestic product) is a function of the number of workers it has and their productivity. As the number of workers decreases, raising productivity is the only way to generate economic growth.

How much productivity can increase is up for debate, however. Technological and organizational innovation can raise productivity. But, as people age they tend to take fewer risks. They become less entrepreneurial; and they invest less in risky tech stocks and more in safe bonds.

Additionally, governments may likely decrease spending on education and scientific research in order to cover skyrocketing costs of healthcare and pensions. Borrowing by the government could also divert capital away from technology investments in the private sector.

Essentially, it’s still up in the air whether productivity can rise enough to increase per capita GDP in a country with a shrinking labor force and growing number of elderly dependents.

The third area of concern is the international balance of power. In terms of U.S. military power, it may become increasingly difficult to maintain military spending at desired levels as Social Security and Medicare consume more of the budget.

In many developed countries, as the age 18-24 demographic shrinks and as families have fewer sons, people may become more hesitant about engaging in armed conflicts. Even if advanced military technologies could reduce the number of troops needed in a conflict, those technologies would still require considerable government spending in research and development.

Thus, falling birthrates should raise concerns over retirement security, economic growth and the international balance of power.

In the U.S., Americans will be faced with tradeoffs between spending on the elderly and other needs. In a panel discussion on fiscal responsibility at Duke University last month, Stuart Butler, vice president of domestic and economic policy at the Heritage Foundation, said we need to consider how fair and just it is to let the budget become overwhelmingly consumed by entitlements for the middle-class elderly. He also said we need to consider the equity of letting Bill Gates get subsidized drugs while soldiers can’t get flak jackets.

In that same panel, Diane Lim Rogers of the Brookings Institution warned that the only way politicians will implement solutions to the problems posed by the demographic tsunami of aging baby boomers is for the public to turn unpopular choices into popular choices.

She’s probably right.

And so is Lisa Simpson when she reminds us that children are our most valuable natural resource—the future generation we take for granted until we realize it’s not there.

Defection of Young, Healthy Males

This column was published in The Chronicle March 22, 2006.

Young, healthy men: Please don't defect. We need you. That was the underlying message I got while sitting through a statistics-filled PowerPoint presentation on Duke's student health insurance plan at Monday night's GPSC meeting.

Currently, students pay $1,589 for insurance. That's 50 percent higher than the $1,063 students paid just two years ago. As a result, students under 26-who were repeatedly referred to in the GPSC meeting as "young, healthy males"-have been defecting from Duke's student health insurance plan and privately purchasing cheaper individual plans.

Sadly, those of us who aren't young, healthy and/or male don't have that luxury. To join a private, individual plan, applicants have to complete an extensive medical history questionnaire. If you're older, if you're female or if you have a pre-existing condition such as allergies, diabetes or an anxiety disorder, then you are typically charged a higher cost or are outright rejected.

Thus, expensive students-those over 25, female and/or unhealthy-remain on Duke's plan, which accepts all students at the same price.

Any student of economics or public policy should now know the phenomenon I'm describing-adverse selection. As inexpensive students-the young, healthy males-exit Duke's plan, the plan becomes more concentrated with expensive students, which drives up insurance costs to levels that are increasingly unaffordable to the very people who need healthcare the most.

Monday's presentation included a recommendation for age banding, a structural change that would address adverse selection head-on. Next year students under 26 would pay $1,469, those 26 to 34 would pay $1,541, those 35 to 44 would pay $1,939 and those older than 45 would pay $2,791. Given that all students, regardless of their age, currently pay $1,589, it's clear who the winners and the losers would be.

Let me emphasize that age banding is just a recommendation at this point. (If you have feelings either way, e-mail GPSC at gpsc@duke.edu.)

Age banding represents just one of the many ethical dilemmas that plague health insurance. Just as younger students currently subsidize the higher medical costs incurred by older students, single students subsidize students with families. During the 2003-2004 academic year, single students paid $1,063 for health insurance but only rang up an average of $757 in medical costs. Meanwhile, students with families paid $2,282 for insurance but rang up an average of $4,773 in medical costs.

Similarly, if the data were available, it would probably show that men subsidize women, slim people subsidize obese people, non-smokers subsidize smokers and gym rats subsidize coach potatoes.

From a philosophical viewpoint, how much of this subsidization is fair, both at Duke and in the United States at large? On one hand, there's the individualistic, personal-responsibility-oriented viewpoint: Why should I, as a slim, marathon-running vegetarian, have to pay the healthcare costs of a fat smoker who goes to McDonald's three times a week?

On the other hand, there's the compassionate, we're-all-in-this-together viewpoint: Society should help people who have the bad luck of being afflicted by asthma or hypoglycemia. Plus, people who are young and childless today are likely to one day be old and have kids.

I lean more toward the compassionate, we're-all-in-this-together viewpoint even though it means subsidizing people who make poor lifestyle choices. For ethical reasons, I want people with ulcers, hay fever, depression, thyroid disorders, spina bifida and cancer to have access to affordable healthcare.

For pragmatic reasons, I want people to have affordable healthcare so that they can be economically productive workers and receive relatively inexpensive routine preventative care rather than expensive emergency care when untreated health problems turn into emergencies.

As I sat through last night's health insurance presentation, I came to the conclusion that the equity issues raised by age banding, single students' subsidization of families and the defection of young, healthy men are problems that Duke simply can not solve on its own. Without outside help from effective public policies at the state and/or national levels, Duke and other institutions will perennially face the problem of getting enough inexpensive people to remain in a plan and subsidize the expensive people.

Presently, my sentiment is that it would be more practical for Duke's most expensive students to be subsidized by Americans as a whole rather than the shrinking population of young, healthy males on Duke's plan.

Young, healthy males may be able to defect from Duke, but it's harder to defect from the United States.

The Trade Offs of Foreign Ownership

No, I haven't forgotten about this blog. I just decided that my master's project comes first for the next few weeks. It has to--if I don't complete it, then I can't graduate!

What's Been on My Mind Lately:

Foreign Ownership

Consider the following:

--The overwhelming majority of Americans are against letting American ports be managed by an Arab-owned company based in Dubai.

--In my hometown of Lexington, Ky, a large fraction of the residents oppose the sale of Kentucky American Water Company to a German company. Foreign ownership of our water utility makes a lot of people nervous. Can a bunch of Germans thousands of miles away truly be responsive to the water needs of central Kentuckians?

--Last year, many American politicians were opposed to a Chinese state-owned company's potential purchase of an American oil company (or was it an American oil reserve?--sorry I can't remember.). Recently I found out that one of my classmates--who's from China--is answering the following policy question in his master's project:

How should Chinese state-owned energy enterprises best evaluate political and legal risks to avoid adverse results when attempting takeovers on US petroleum assets?

--Some American politicians believe that domestic airlines should not come under foreign ownership because of national security considerations.

--Kentucky author Wendell Berry has written ominously about becoming overly dependent on foreign trade. He worries about cases such as what would happen if the United States procured all or most of its food supply from foreign sources. To him, one of the best ways to ensure "homeland defense" is to meet as many of the homeland's needs on our own before turning to outside sources.

Basically, when it comes to economic globalization, there are trade offs. Any introductory-level economics course will teach you about the mutual advantages of international trade. At the same time, economics textbooks don't say much about the dangers of becoming dependent on others. Presently, the United States is at a crossroads. How do we balance the benefits of globalization and international trade with the vulnerability that comes from letting foreigners own and manage some of our most crucial assets?

Also on My Mind:

Master's Project- I've been making tremendous progress on it. I truly wish I could spend more time and go into increasing depth on it. There's so much to say! Old-age income security for people in India is a large, complex policy issue, but there are so many policy options about there. It's such an opportunity to think outside the box and develop some creative solutions.

Social Security reform- My 30-minute presentation on individual accounts last Friday went well. I explained what the accounts are, outlined their their potential benefits and drawbacks and concluded with some questions I think people should consider when trying to evaluate individual accounts as a reform option. Currently, I'm concerned about transition costs. Countries such as Chile and Sweden built up budget surpluses in anticipation of their transitions to individual accounts. The United States has the exact opposite--a huge budget deficit. Yes, the transition costs are supposed to be "cancelled out" by the savings from clawing back traditional pay-as-you-go Social Security pensions, but an extra trillion-plus dollars in debt has other political and macroeconomic consequences that may not be too pleasant. Plus, there's the intergenerational equity issue of who gets to pay back the debt incurred from the transition costs.

Taking a macroeconomics course- I admit it. I've never formally studied macroeconomics. Mostly, I've just learned tidbits here and there through reading journal articles and pieces from the popular press. But, starting this Monday, I'm taking a class at Duke's Fuqua School of Business called "Global Economic Environment of the Firm." Basically, it's a macroeconomics course. I'm excited. I'll finally be filling in one of the weaknesses I feel that I have in my knowledge base. I get to learn about business cycles, interest rates, inflation, foreign exchange, unemployment, GDP, international capital flows and all the other important economic principles that you read about in The Wall Street Journal and The Economist.

Increasing My Web Savvy Day by Day

I recently learned how to scan documents and save them as pdf files. Then I learned that I could upload them to my website!

Yes, I know to some people this may sound like no big deal, but I'm a bit of a neophyte at web design, so I delight in every small stride I make.

I scanned and posted as a single pdf file two pieces I wrote:
1) An op-ed about women and social security that I wrote for the Lexington Herald-Leader last August (page 1 of the pdf file), and
2) An article comparing Bush and Kerry on health policy that I wrote for The Chronicle in October 2004 as the presidential campaign was in full swing (pages 2 and 3 of the pdf file).

Immersed in Social Security

I haven't posted in four days because I've be immersed in the world of security securty at many levels.

Last Friday, I began a half-semester course "Managing Entitlements with an Aging Population." Basically, I'll be analyzing various ways in which the U.S. Social Security system can be reformed to accomdate the strain of the baby boomers. I'll be reading lots of reports from the GAO (Government Accountability Office) and various think tanks. I'll also be studying the experiences of developed countries such as Japan, Australia, Sweden, the UK and France. I bravely volunteered to give the first class presentation this coming Friday. I have to present for 30 minutes on the reform option of fully funded individual accounts. Lucky for me, I've already read up on the Chilean system. In preparation for the presentation, I'll also be reading up on Sweden and Australia.

This weekend, I made tremendous strides on my master's project, the title page of which reads "A Social Security System...in India?" I've number crunched demographic, policy and economic indicators in an extensively large Excel spreadsheet in order to calculate what pension deficits in a pay-as-you-go system would be under varying demographic, policy and economic scenarios. My results? Well, I've "embargoed" them temporarily until I meet with my advisor Wednesday and get him to look over my results.

Over the past 15 hours, I've been focusing on health policy. I'm a writing tutor for a graduate-level health policy course, and the students have a report due this week. I got up at 5:35 this morning and edited one team's report until 10:00 (in addition to the 1.75 hours I put in yesterday evening). These long reports are a lot to wrangle with!

Aahh! I love policy. I love writing. I love editing. I'm so fortunate to be doing what I love.

Someone Wants Your Eggs

Are you a Hispanic, Spanish or Italian woman who is under 29 and had an SAT score of at least 1,300? If you answered yes, someone wants your eggs for $15,000. This was the information in a classified ad that appeared in the March 1 edition of The Chronicle--the second ad listed in the "Annoucements" section. I have qualms about egg donation between strangers. The donor may never have the chance to see or be involved in the life of the resulting child, who is biologically hers. She may never know whether the child that came from her egg looks like her or has a similar personality.

As more and more women try to have children at older ages, I suppose egg donation may become a more common practice and could grow more acceptable. It's a bioethical issue that raises a lot of questions. For example, what are the chances that a college-age woman with an SAT score above 1,300 will have eggs that yield a child with similar academic talent (not considering environmental factors)? How ethical is it to try and have a designer baby?

If you are interested in learning more about women who have children at older ages by using donor eggs, you can read my opinion column "Pushing the Boundaries of Birth" that I wrote last fall.

What I Couldn't Cram into the Space of a 750-Word Column

One of the challenges I have as an opinion columnist is that there is so much I want to say, but I only have 750 words in which to say it. So for anyone who read my column today and wants to learn more about how globalization, stricter U.S. immigration policies and demography will make it increasingly more difficult for the United States to meet its demand for talented scientists and engineers, you are welcome to peruse a 21-page term paper I wrote for my Globalization & Governance course in December 2004.
Impact of Globalization on U.S. Demand for Scientists and Engineers, and Implications for National Governance

If you don't have time for a 21-page paper, you can read an op-ed column that I penned last spring about the underrepresentation of women in science and engineering and also the impact of motherhood on working women. Like my column today, this column is also titled "Why I'm Not an Engineer" and opens with a similar lead. Please read on past the first several sentences; the column isn't identical to the one printed today.

Why I'm Not an Engineer

This column was published in The Chronicle March 1, 2006.

My senior year in high school, I was voted "Most Likely to Discover the Meaning of Life Through Differential Calculus." The following year, in college, I received an A in my calculus IV class. Five years later I graduated with a bachelor's degree in chemical engineering. Now I'm working on my master's degree.

The only thing is, I'm working on a master's degree in public policy, not chemical engineering.

Why didn't I become a chemical engineer? The question has been on my mind a lot the past year, from the time of former Harvard President Larry Summers' inflammatory hypothesis of why women are underrespresented in science and engineering to his resignation last week.

Both women's and racial minorities' underrepresentation is an important issue not just from a social justice viewpoint, but also from an economic competitiveness viewpoint. Science and technology fuel economic growth, but three forces are beginning to erode U.S. preeminence in these fields.

First, globalization has increased competition for talented scientists and engineers. Historically, the United States filled its labor shortage of scientists and engineers by "importing" them from other countries. For example, 38 percent of doctorate-level scientists and engineers in 2000 were foreign born. Due to globalization, however, other countries are becoming competitive with the United States and attracting scientists and engineers who otherwise would have come here.

Second, U.S. immigration policy has gotten stricter since Sept. 11, making it harder to get a visa. This impedes the brightest international students and researchers from coming to the United States and strengthening its science and technology sectors. In fall 2003, U.S. universities recorded their first decline in foreign enrollment since 1971.

Third, demographic trends raise the concern of who will replace retiring scientists and engineers of the baby-boom generation. From 2010 to 2025, the share of the college-age population that is Hispanic, African American or American Indian/Alaska- Native will increase from 32 to 38 percent. These groups, however, earn bachelor's degrees in science and engineering at less than half the rate of whites and Asian/Pacific Islanders.

Given these forces of globalization, immigration policy and demography, what should the United States do to ensure it has enough scientists and engineers to remain competitive? The obvious move is to start developing the untapped potential of underrepresented groups-both racial minorities and women.

During the last year, however, we have been fixated on whether women have less intrinsic ability in science and engineering. I am fine remaining open minded to the possibility of innate differences between the sexes, but we should not let that debate serve to justify the status quo. Over the past 40 years, women have gradually increased their presence in science and engineering-an advance hardly explained by genetic differences.

Furthermore, even if innate differences do exist, it may not have to do so much with ability as it has to do with preferences. Social science research has shown that girls are more interested in people, social values and humanitarian and altruistic goals. Boys have expressed more interest in things, theoretical values and abstract intellectual inquiry.

Whether this difference is the product of nature or nurture is up for debate. If it is due to innate differences, though, that does not excuse the current degree of women's underrepresentation in science and engineering. It just means these fields need to be marketed with more of a human face.

And they can be. Engineers develop life-saving drugs, environmentally friendly fuel sources, prosthetic limbs and safer roads. Organizations such as Engineers Without Borders help communities in poor countries develop clean water supplies, irrigation systems, bridges and wastewater treatment systems.

In addition to marketing science and engineering in ways that may appeal more to women and racial minorities, we need to change the cultural attitude that math and science are hard subjects that are acceptable to be bad at. So many Americans have no shame saying, "I'm bad at math; I can't even balance my checkbook." But, you'll never here someone saying, "I'm bad at reading; I can't even understand the newspaper."

Turning back to me, I left engineering because it left me unfulfilled. Working at a chemical plant just does not lead to direct, visible improvement of the human condition. Thus, it is no surprise that I am now studying the "save-the-world" field of public policy.

So, while I may never discover the meaning of life through differential calculus, I have enjoyed applying my mathematical talent to my economic and statistics courses here at Duke.